How to Save WTO Dispute Settlement from the Trump Administration

How to Save WTO Dispute Settlement from the Trump Administration

Steve Charnovitz

The Trump Administration is trying to torpedo the World Trade Organization (WTO) dispute settlement system. According to the November 2, 2017 Wall Street Journal article "Has China Swallowed the WTO" by Jacob M. Schlesinger, "The Trump administration has escalated the Obama administration's battle over the appellate body, blocking appointments of any new judges and sparking fights even with members sympathetic to the U.S. campaign against China." Schlesinger further explains that at the August 31 meeting of the WTO Dispute Settlement Body (DSB), the United States "said it would block any attempt to fill those slots until 'longstanding' complaints about the court were addressed."

In an earlier post, I reported on the Obama Administration's shameful intervention in 2016 to block the re-election of the judge from Korea. See Steve Charnovitz, "The Obama Administration's Attack on Appellate Body Independence Shows the Need for Reforms," Sept. 22, 2016. Unfortunately, by getting away with that scheme, the US Trade Representative became emboldened to block future appointments to the Appellate Body.

The current WTO judicial elections crisis is even worse as there are now two WTO appellator slots where new members are needed. A third seat on the seven-member Appellate Body will open on December 11, 2017 when the term ends for Prof. Peter Van den Bossche, the distinguished jurist from the European Union. At the most recent DSB meeting for which the WTO has published minutes, on September 29, 2017, the minutes show the United States delegate saying that the United States "could not consider launching a selection process to fill a vacancy on the Appellate Body if the person to be replaced continued to serve and decide appeals." See WTO, Appellate Body matters, September 29, 2017. Under the Appellate Body Working Procedures, appellators actively serving as judges on a particular case have always continued to complete service on that case after their formal term expires.

A vacancy of three of the seven members of the Appellate Body will put WTO dispute settlement into an existential crisis. The shorthanded Appellate Body has already fallen behind its normal processing time in several cases, and with additional judges being eliminated, the continued viability of the DSU Article 17 right to appeal will be in doubt because each appeal must have a division of three appellators. Even worse, the WTO dispute rules (Art. 16.4) delay the adoption of a panel report by the DSB "until after completion of the appeal." So if the Trump Administration's intransigence renders the Appellate Body inutile, that also makes it impractical to adopt any panel report because either party to the proceeding could lodge an appeal as a way to stop that case dead in its tracks. That nightmare scenario would effectively put the entire WTO dispute settlement out of business.

The Trump Administration is using this gambit to intimidate other countries to agree to its goals of watering down substantive trade disciplines and rules of WTO judicial procedure. Governments that cherish the international economic rule of law see a hard choice between giving into U.S. protectionist demands and weakening the WTO enforcement system. (See Bryce Baschuk, "WTO Members Fired Up Over Appellate Body Obstruction by U.S," Bloomberg BNA International Trade Reporter, 34 ITR 1418, Oct. 26, 2017.)

Happily a third option exists. The Appellate Body can step in to shore up WTO dispute settlement. Yet time is short because after December 11, there will be only a bare majority of the Appellate Body empowered to make decisions pursuant to Rules 3(1) and 15 of the Working Procedures for Appellate Body Review.

The third option is to amend the Appellate Body's Working Procedures. Article 17.9 of the WTO Dispute Settlement Understanding empowers the Appellate Body to draw up Working Procedures in consultation with the Chairman of the DSB and the WTO Director-General. This authority has been used regularly by the Appellate Body since February 1996. The Appellate Body does not need U.S. consent to amend its Working Procedures.

I propose that the Appellate Body amend Rule 20 of the Working Procedures to state that in the event of three or more expired terms in the Appellate Body membership, the Appellate Body will be unable to accept any new appeals. Although the Appellate Body does not have the right to formally take away the right to appeal, it does have the right to declare in advance that under those extreme circumstances, the "completion of the appeal" will occur automatically on the same day that any new appeal is lodged. In other words, by removing itself from the dispute process for new cases, a disabled Appellate Body will step aside so that the panel decision can automatically be adopted by the WTO Dispute Settlement Body on a timely basis. For a depleted Appellate Body bench to continue processing new cases would necessarily cause huge delays, thus frustrating the Uruguay Round goals of a prompt dispute system. (See Gregory Shaffer, Manfred Elsig & Mark Pollack, "Trump is fighting an open war on trade. His stealth war on trade may be even more important," Washington Post Monkey Cage, Sept. 27, 2017.) The current docket of the Appellate Body already includes seven appeals that would be pursued to conclusion under my proposal. But no new appeals would be processed after December 11, 2017.

The creation of the second-level review by the Appellate Body was one of the most innovative and successful features of the WTO dispute understanding achieved during the Uruguay Round. Foregoing appellate review would be a loss to the system, but the system could survive it temporarily. While the attack on the independent Appellate Body by the Trump Administration is unfortunate and not easy to fight off due to consensus rulemaking in the DSB, the DSU rules do give the Appellate Body the tools to preserve much of the integrity of the WTO dispute panel system.

I urge the Appellate Body to erect this defense now before it is too late. By limiting the potential damage to WTO dispute settlement in this way, the Appellate Body could, in effect, call the Trump Administration's bluff as to whether it wants to maintain the option of a United States appeal in future WTO panel decisions.

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How to Save WTO Dispute Settlement from the Trump Administration

How to Save WTO Dispute Settlement from the Trump Administration

Steve Charnovitz

The Trump Administration is trying to torpedo the World Trade Organization (WTO) dispute settlement system. According to the November 2, 2017 Wall Street Journal article "Has China Swallowed the WTO" by Jacob M. Schlesinger, "The Trump administration has escalated the Obama administration's battle over the appellate body, blocking appointments of any new judges and sparking fights even with members sympathetic to the U.S. campaign against China." Schlesinger further explains that at the August 31 meeting of the WTO Dispute Settlement Body (DSB), the United States "said it would block any attempt to fill those slots until 'longstanding' complaints about the court were addressed."

In an earlier post, I reported on the Obama Administration's shameful intervention in 2016 to block the re-election of the judge from Korea. See Steve Charnovitz, "The Obama Administration's Attack on Appellate Body Independence Shows the Need for Reforms," Sept. 22, 2016. Unfortunately, by getting away with that scheme, the US Trade Representative became emboldened to block future appointments to the Appellate Body.

The current WTO judicial elections crisis is even worse as there are now two WTO appellator slots where new members are needed. A third seat on the seven-member Appellate Body will open on December 11, 2017 when the term ends for Prof. Peter Van den Bossche, the distinguished jurist from the European Union. At the most recent DSB meeting for which the WTO has published minutes, on September 29, 2017, the minutes show the United States delegate saying that the United States "could not consider launching a selection process to fill a vacancy on the Appellate Body if the person to be replaced continued to serve and decide appeals." See WTO, Appellate Body matters, September 29, 2017. Under the Appellate Body Working Procedures, appellators actively serving as judges on a particular case have always continued to complete service on that case after their formal term expires.

A vacancy of three of the seven members of the Appellate Body will put WTO dispute settlement into an existential crisis. The shorthanded Appellate Body has already fallen behind its normal processing time in several cases, and with additional judges being eliminated, the continued viability of the DSU Article 17 right to appeal will be in doubt because each appeal must have a division of three appellators. Even worse, the WTO dispute rules (Art. 16.4) delay the adoption of a panel report by the DSB "until after completion of the appeal." So if the Trump Administration's intransigence renders the Appellate Body inutile, that also makes it impractical to adopt any panel report because either party to the proceeding could lodge an appeal as a way to stop that case dead in its tracks. That nightmare scenario would effectively put the entire WTO dispute settlement out of business.

The Trump Administration is using this gambit to intimidate other countries to agree to its goals of watering down substantive trade disciplines and rules of WTO judicial procedure. Governments that cherish the international economic rule of law see a hard choice between giving into U.S. protectionist demands and weakening the WTO enforcement system. (See Bryce Baschuk, "WTO Members Fired Up Over Appellate Body Obstruction by U.S," Bloomberg BNA International Trade Reporter, 34 ITR 1418, Oct. 26, 2017.)

Happily a third option exists. The Appellate Body can step in to shore up WTO dispute settlement. Yet time is short because after December 11, there will be only a bare majority of the Appellate Body empowered to make decisions pursuant to Rules 3(1) and 15 of the Working Procedures for Appellate Body Review.

The third option is to amend the Appellate Body's Working Procedures. Article 17.9 of the WTO Dispute Settlement Understanding empowers the Appellate Body to draw up Working Procedures in consultation with the Chairman of the DSB and the WTO Director-General. This authority has been used regularly by the Appellate Body since February 1996. The Appellate Body does not need U.S. consent to amend its Working Procedures.

I propose that the Appellate Body amend Rule 20 of the Working Procedures to state that in the event of three or more expired terms in the Appellate Body membership, the Appellate Body will be unable to accept any new appeals. Although the Appellate Body does not have the right to formally take away the right to appeal, it does have the right to declare in advance that under those extreme circumstances, the "completion of the appeal" will occur automatically on the same day that any new appeal is lodged. In other words, by removing itself from the dispute process for new cases, a disabled Appellate Body will step aside so that the panel decision can automatically be adopted by the WTO Dispute Settlement Body on a timely basis. For a depleted Appellate Body bench to continue processing new cases would necessarily cause huge delays, thus frustrating the Uruguay Round goals of a prompt dispute system. (See Gregory Shaffer, Manfred Elsig & Mark Pollack, "Trump is fighting an open war on trade. His stealth war on trade may be even more important," Washington Post Monkey Cage, Sept. 27, 2017.) The current docket of the Appellate Body already includes seven appeals that would be pursued to conclusion under my proposal. But no new appeals would be processed after December 11, 2017.

The creation of the second-level review by the Appellate Body was one of the most innovative and successful features of the WTO dispute understanding achieved during the Uruguay Round. Foregoing appellate review would be a loss to the system, but the system could survive it temporarily. While the attack on the independent Appellate Body by the Trump Administration is unfortunate and not easy to fight off due to consensus rulemaking in the DSB, the DSU rules do give the Appellate Body the tools to preserve much of the integrity of the WTO dispute panel system.

I urge the Appellate Body to erect this defense now before it is too late. By limiting the potential damage to WTO dispute settlement in this way, the Appellate Body could, in effect, call the Trump Administration's bluff as to whether it wants to maintain the option of a United States appeal in future WTO panel decisions.